MSM Exclusives

Real Talk About The RealPage Case: Is Self-Storage At Risk?

Written by Brad Hadfield | Sep 25, 2024 5:59:16 PM

“It’s too risky to expose our data,” commented one facility owner when asked about sharing data in our July Reader Survey. While most respondents were receptive to the idea, others like this operator had concerns. Now, with the RealPage case making headlines – the Department of Justice is alleging that the company’s software enables landlords to coordinate pricing strategies, violating federal antitrust laws – were they right to have these concerns? Or is data sharing in the self-storage industry somehow different, and less likely to cause a stir? 

 

RealPage Case In A Nutshell

The legal case against RealPage began in late 2022 when law firms filed lawsuits on behalf of tenants in a handful of cities. The lawsuits were looking to bring about a class-action case, alleging that RealPage's revenue management software was used to collude and raise rents. 

 

On August 23, 2024, the DOJ filed its own case against RealPage, claiming the company is engaging in a price-fixing scheme designed to drive up rents. According to the complaint, that information includes current rents, vacancy rates, and lease expiration dates. It alleges that on a daily basis, the software’s AI suggests what rent a landlord should charge to maximize profits. “Americans should not have to pay more in rent because a company has found a new way to scheme with landlords to break the law,” said U.S. Attorney General Merrick Garland. “We allege that RealPage’s pricing algorithm enables landlords to share confidential, competitively sensitive information and align their rents."

 

RealPage denies its software is anticompetitive, and states it also lowers rents when demand drops to reduce vacancy rates. They have also stated their platform only offers a recommendation, which landlords can take or not, however the complaint says it is difficult to reject or override the recommendation. 

 

“Landlords are encouraged to configure the product to automatically accept the RealPage recommendations,” says Eric Dunn, a tenants rights lawyer with the National Housing Law Project. “And if a property manager doesn't want to accept the recommendation, they have to put in an explanation,” which he says is then sent to a regional manager. He also states that RealPage holds online training sessions in which property managers chat with each other, and that landlords communicate directly regarding pricing in other ways. 

 

Dismissed & Pending Cases

While the case against RealPage may appear damning, there’s no guarantee that the lawsuit will prevail. In May of this year, there was a proposed consumer class-action lawsuit accusing a group of major Las Vegas hotels, including Wynn, Caesars, and Treasure Island, alleging that management was using a revenue platform by tech company Cendyn to unlawfully coordinate room prices. 

 

Chief U.S. District Judge Miranda Du threw out the case, stating there was no evidence that the hotels had made any agreement with each other to fix prices. Du further pointed out in her ruling that the hotels “are not required to and often do not accept the pricing recommendations [made by Cendyn’s algorithm].”

 

This hasn’t stopped others from trying. Consumer plaintiffs have also filed a lawsuit against CoStar, which publishes the hotel industry’s STR reports. They claim the company, and six hotel operators including Hilton, Hyatt, and Marriott, conspired to fix prices in order to keep them “artificially high.” CoStar has asked for the case to be dismissed, calling it “fanciful.” They defended their reports as simply using historical data on room availability and revenue, and stated they did not include “algorithms nor pricing recommendations.” The case is still pending.

 

Early Industry Concerns

In 2023, when MSM began a series of articles encouraging data sharing within the self-storage industry, Jeff Adler, Vice President at Yardi Matrix, a real estate market intelligence platform, was skeptical that it would happen. He told MSM that there was “deep concern among some self-storage owners that sharing rents would lead to similar accusations of price fixing.” 

 

“The self storage industry is less sensitive to this type of thing than housing, but it’s still a concern,” said Adler at the time. “Rents are already online, but any move to further consolidate collection of that data comes with some risk of price collusion.”

 

Adam Wagner, President of Superior Storage, told us he didn’t see it that way. “Collusion to me is asking other facilities what they’re charging and then agreeing not to go above or below a certain amount. All we do is look at pricing models and trends in our area to maximize our investments.” 

 

Continued Wagner, “It’d be a different story if everyone in a housing market said, ‘Okay don’t sell below $250 a foot,’ but that’s not what’s going on.”

 

Adler further stated that to be safe, pricing information should never be collected daily (something Yardi does not do). “You can’t use external data for the purpose of setting prices regularly,” he said. “Monthly or quarterly is okay for benchmarking and valuation purposes. If you’re just using it for that, there’s nothing to worry about.”

 

Revenue Management Leaders Weigh In

 

MSM reached out to two leaders in self-storage revenue management, Dr. Warren Lieberman, President of Veritec Solutions, and Dr. Ahmet Kuyumcu, Founder and CEO of Prorize, LLC. They have both been following the case and offered their thoughts on its potential impact on the self-storage industry.

 

“What RealPage is allegedly doing is taking privately-held information from multiple entities that ostensibly compete with one another, and using that knowledge to drive its recommendations,” explains Lieberman. “They’re also allegedly telling companies to use their recommendations, and that’s where price fixing comes in.”

 

Lieberman says there are no lawsuits against the individual property owners because they’re not necessarily collaborating, but rather engaging with RealPage which is enabling them to act together whether they realize it or not. “Sure, they may have a high-level knowledge of what’s going on, but they likely don’t know the internals of the algorithms. They're not the ones that are driving the actions. That’s RealPage, and that’s why I would anticipate that this will only focus on them, not the landlords or property managers.”

 

When it comes to self-storage operators sharing data, this is welcome news; however, Lieberman says due to the RealPage case, there may be some nervousness on the part of self-storage revenue management and pricing system platforms. Still, he says a number of factors would have to exist for a case ever to be brought against them – most importantly, they would need to exert enough control over a market to move the market. “In self-storage, where the industry is extraordinarily fragmented, they’re likely not impacting the market in a way that is a detriment to consumers,” he says. “It would be very unlikely that their pricing recommendations could be considered collusion.”

 

Lieberman says that even in an unlikely event that a platform does have access to most operators’ data, they still can provide information – they just need to exercise a bit of caution. “Let's pretend that we had information about 90 percent of all of the operators in an area. It still might be okay to publish high level statistics: General occupancy, trend information, year-over-year information. That’s not price fixing, and this could be shared and published, and operators would then need to interpret it and decide what they want to do with it. That doesn't even approach any sort of collusion.”

 

“There are so many factors when it comes to self-storage pricing,” says Kuyumcu, holding up his hand and emphasizing each with a finger. “There’s unit size, unit type, availability, demand forecasts, price sensitivity… All of these need to be taken into consideration when determining the recommended price. This will give you a baseline. From there, you ultimately determine where you should set your price based on the unit you’re renting and all those factors. Even two sister properties in the same market might behave completely differently due to these variables.”

 

While some operators choose to simply accept Prorize’s recommendations, Kuyumcu states firmly that they are under no obligation to do so, which is one sticking point in the current RealPage lawsuit. “We just provide guidance, and that can easily be overridden. This is especially important when the system doesn’t have relevant information. For example, if demand is low because roads are blocked due to major construction, the

system wouldn’t account for that and might adjust rates based on reduced demand. Operators can step in and override the recommendations in these cases.”

 

Continues Kuyumcu, “With RealPage, if the landlord is unable to easily override the recommendations, the operators might not have the final say.” He says that to be safe, platforms must always make it easy to override the algorithm, which is why Prorize makes it so simple for operators, especially if the recommendation does not align with the supply and demand in their specific market.

 

Kuyumcu asserts that anyone working with pricing models needs to be cognizant of pricing laws. For example, in the event of a state of emergency, Prorize restricts models to comply with legal pricing mandates. In addition, pricing models should only use publicly available data from competitors. But overall, he feels concern in self-storage is likely exaggerated. “Look, housing is always going to be scrutinized much more closely than self-storage, as an apartment rental is the single most expensive budget item and directly affects people’s livelihoods, while self-storage is discretionary. There are also ethical and fairness aspects that play a much bigger role for housing”.

 

Keep shared information at a high level, and don’t share privately held current data, that’s the best bet,” concludes Lieberman. “And be sure not to include any kind of demographic or geographic information about customers. You don’t want to exacerbate income inequality, or be price insensitive in a specific zip code or market that results in some kind of gender or ethnic discrimination. Even if it's unintentional discrimination, it’s still illegal.”

 

A Legal Perspective

 

California attorney Carlos Kaslow, the editor of the Self Storage Association’s Self Storage Legal Review, says that while he may not be an anti-trust lawyer, he understands the heart of the issues at play here – though he acknowledges they are complex.

 

“This is all new territory,” explains Kaslow. “In the past, price fixing was a group of people getting together and agreeing with one another what they were going to do. Now, with AI algorithms and data scraping, there are a lot of gray areas. But one thing is black and white: Price fixing is illegal.”

 

Kaslow says that sharing self-storage data anonymously and through a third-party in and of itself should not present a problem, but the intermediary needs to be careful with what they share. “Giving data to them is not illegal on its own, it’s what they do with it. And they should have the expertise, and the consult of a legal expert, to know what can be provided and what cannot. This way, everyone gets what they want, and everyone keeps their nose clean.”

 

The Self-Storage Data Sharing Difference

Has any of this changed the mind of data-sharing advocate Travis Morrow, who wrote MSM’s first pro-data sharing piece The Data Sharing Dilemma back in June 2023? 

 

“No,” says Morrow, who previously wrote that the potential benefits of having high-quality, safely aggregated industry data could be huge. “I believe operators stay safe through anonymity and project management systems stay safe through the use of a trusted intermediary like Moody’s. And to be honest, at the moment, our data is so bad as an industry, no one would even think of suing us for something like this.”

 

He is also quick to point out that the type of sharing he is advocating for is not going to put anyone in the crosshairs of the DOJ or any legal eagles. “It’s historical information going back a week with market data. You can see what the average rent was in Tucson, for example, and adjust your rate accordingly based on your occupancy, your amenities, and so on. Think of it as receiving Self-Storage Almanac data once a week instead of once a year.”

 

“But we’re not anywhere near that now anyhow,” laughs Morrow. “Let’s first get to a point where our data even approaches the level of quality that other property categories have, and then we can talk about these issues.”

 

Brad Hadfield is the website manager and a news writer for MSM.